NEW YORK—To the casual observer, little has changed in wholesale optical laboratories over the past two decades. The essential lab functions—fabricating prescription eyeglass lenses, selling eyeglass frames, contact lenses and other optical products and services—continue to be performed by most labs every day. Job orders are still being processed, and lenses are still being surfaced, coated, edged, inserted into frames, inspected and shipped to customers.

Yet sweeping changes have taken place in wholesale labs since 1992, the first year Vision Monday published its Top Labs Report, as anyone who has worked in or closely watched the optical industry in recent years can attest. Advances in lens processing technology—most notably increased automation and the advent of free-form lens surfacing—have brought greater efficiencies to lab operations and boosted labs’ profits. Additionally, widespread consolidation resulting from numerous mergers and acquisitions has created large, supplier-owned wholesale laboratory networks that continue to grow and have radically redrawn the competitive “labscape” over the past two decades.

These two forces—automation and consolidation—continue to shape the outlook for the industry’s largest wholesale laboratories, according to VM’s 2012 Top Labs Report. Conducted annually by VM, the newly released report compares net sales, Rx sales, Rx jobs per day and other key indicators for the 12 months ending August 31, 2012 with data from the prior 12 months and 1992.

Among the Report’s key finding is that combined net sales for the Top Labs, including both supplier-owned lab networks and the independent labs, reached a record $2,303 million in 2012, up 4.1 percent from 2011. Rx sales for the Top Labs—the primary criterion for ranking them—totalled $1,957.5 million collectively, up 4.4 percent over 2011. The Top Labs produced a total of 133,692 Rx jobs per day, or roughly 33.4 million Rx jobs annually, a 2.5 percent increase over last year.

Top 5 Supplier-Owned Networks The past 12 months were especially productive for the Top 5 Supplier-Owned U.S. Wholesale Lab Networks. Collectively, the Top 5 generated $1,710 million in total net sales, up 5.7 percent over 2011. Total Rx sales, which is based on the labs’ core business of surfacing and finishing prescription lenses and is the primary basis of the Top Labs rankings, totaled $1,532.1, a 6.6 percent increase over 2011. Rx lenses sales comprised 92 percent of Total Net Sales for the Top 5 Labs, flat with 2011.

The number of Rx jobs per day for the Top 5 climbed to 102,900, up 3.2 percent over 2011. The average proportion of uncut lens jobs among the Top 5 is 35 percent, flat with 2011. The Top 5 currently operates 192 individual lab locations, one more than in 2011. The Top 5 work force consists of 9,414 employees, up 3.2 percent from last year.
The Top 25 Independents On an individual basis, some independent labs made gains in 2012. Collectively, though, the performance of the Top 25 Independent Labs declined slightly from 2011. Total aggregate net sales for the Top 25 Independents in 2012 is $593.1 million, a 0.7 percent decrease over 2011. Total aggregate Rx sales for the Top 25 fell to $425.4 million, down 3.4 percent from 2011.

Rx sales accounted for 92.1 percent of net sales for the Top 25, down 1.7 percent from 2011. Unit sales among the Top 25 shrank to 30,792 Rx jobs per day, down 3.5 percent from 2011. Uncut lenses, on average, accounted for 36.4 percent of Rx jobs produced by the Top 25, up 11.3 percent over 2011.

The total number of lab locations operated by the Top 25 decreased to 75, one less than 2011. The size of the Top 25 labs’ work force decreased 8.2 percent from 2011, to 2,564 employees.

A 20-Year LookbackComparing VM’s Top Labs of 1992 to today’s Top Labs clearly illustrates the scope of change in the wholesale lab sector. For example, in 1992, VM’s Top 25 labs, all of which were then independently owned, generated about $533 million in sales. In 2012, VM’s Top 25 Labs—now including both supplier-owned and independently owned labs—are expected to generate approximately $1.6 billion in sales, a 67.5 percent increase. In 1992, the Top 25 processed about 50,000 Rx prescription jobs daily; this year, they are expected to produce approximately 132,034 Rx jobs per day, a 62 percent increase over 1992. These dramatic shifts are being driven by automation and consolidation.

Increased automation in prescription lens processing has resulted in greater efficiencies. In particular, the broad implementation of lab management software to control all of a lab’s operations, plus the growing use of automated conveyor systems has significantly boosted productivity and profits. Additionally, the introduction of free-form surfacing technology, which sharply reduces inventory and eliminates time-consuming production steps, has further increased the bottom line for many labs. As these technologies have more affordable and scaled-down systems have become available, a growing number of labs have taken advantage of them.

Consolidation, the other major force influencing the wholesale lab sector, began in 1996 when Essilor, the industry’s largest spectacle lens supplier, launched a vertical integration strategy and acquired three major U.S. independent distributors: The Omega Group, Southern Optical and Duffens Optical. The three companies ranked among the VM’s five biggest Top Labs, and each operated multiple locations.

Essilor pursued its acquisition strategy for the remainder of the 1990s and throughout the 2000s, and is continuing to do so today. The company currently operates 136 lab locations throughout the U.S.

Its two largest competitors, Hoya Vision Care and Carl Zeiss Optical, have followed suit. Hoya currently operates 24 branches, and Zeiss operates 18 branches.

Out of VM’s original group of Top Labs in 1992, 13 have been acquired by Essilor, three have been acquired by Hoya and one has been acquired by Zeiss. One of the original labs is defunct; the other seven remain independent (see chart, page 42).

By establishing large U.S. lab networks over which they exert central control, these three lens suppliers have improved efficiencies and productivity within their networks while increasing the penetration of their own branded, premium lens products.
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